$50 mystery charges on motorist’s debit card explained
Read the terms of service on your cards carefully. Otherwise you could end up with a couple of $50 charges on your account for no apparent reason. That’s what happened to Paul Shields when he used his AAA debit card to pay for gas in San Diego recently. His story is a cautionary tale for anyone who pays with plastic, and underscores the importance of reading the fine print in your cardmember agreement.
Shields pulled up to a Chevron station and slid his card. That’s when the fun began. “I hit the ‘debit’ button and it asked for my ZIP code,” he remembers. “Then it signaled ‘unauthorized usage, see attendant.’ The attendant reset the pump and told me to hit the debit card button, first. After that, everything went fine.”
Or so he thought.
Two days later, when I checked my account balance, Chevron had deducted $50 each time at the pump, above the gas purchased and indicated it was for purchases, simply because I put the card in first instead of hitting the debit button first. As a result, $100 was removed from my accont and frozen. Attempts to contact Chevron have been futile and AAA said I would just have to wait and hope the amounts would be re-credited to my account, ’soon’.
I contacted AAA on Shields’ behalf to see if he could get more than a “hope it works out for you.” Several days later, he received the following explanation:
Dear Mr. Shields,
Thank you for your email which was forwarded to us by AAA.
I have today checked your account and can confirm that both amounts of $50 have now been re-credited to your card. The funds are automatically deducted from the card when an automated fuel dispenser is used. This is done to ensure that you have sufficient funds on the card to cover your purchase and is in line with point 3 of our Terms and Conditions:
“When a Cards is used to purchase fuel at an automated fuel pump there must by a minimum of $51 available on your Card. If you spend less than this minimum amount it may take up to seven days from the date of your purchase before any unused balance is available.”
We hope that this clarifies the reasons as to why the funds were deducted from your card, but please do not hesitate to contact us again should you have any further questions are concerns.
Yours sincerely,
Sue Gooch
Prepaid Card Team
Very interesting. Just goes to show how important it is to read the fine print when you get a card. You never know what’s in it.
Many thanks to my friends at AAA for helping Shields get a quick answer. But as someone who has had two large “pre-authorizations” on my credit card recently, I have to wonder: Are these fees necessary? And if so, why?
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18 Responses to “$50 mystery charges on motorist’s debit card explained”
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It’s pure theft by laziness by the cc companies in collaboration with the companies that put the ‘hold’ amount on your cc. By ‘holding’ your money, they can temporarily use it as if it’s theirs. I.e. they can get interest on the money, and I would not be surprised if the cc company can charge you interest for your credit. Furthermore, such a hold brings you closer to your cc limit, and in many cases, customers will go over their limit so that the cc company can charge you some ‘convenience’ charge for allowing you to go over your limit. So a typical win-win situation where the customer looses. I am a dark paranoid conspiracy freak, you say? Then answer this:
What is the reason that they can charge you a ‘hold’ instantaneously, but not refinance equally fast?
From what I understand, this is SOP for any gas station. This is the reason many stations will put cap ($50 or $75) on the amount of gas you can purchase by credit or debit card in one transaction. The charges are then batch processed within a couple of days, and the ‘freeze’ on your account is replaced by the actual charges (if any).
BEWARE, this also applies to debit card transactions, freezing “real” money in your accounts until the transaction is processed.
I don’t think CC companies can charge you interest on ‘pending’ transactions.
Ostensibly, the reason they do the “pre-authorization” on a credit card is to ensure that, if you fill up your tank, there’s enough room left on the card to pay for what you charged.
In the old days when pay-at-the-pump first showed up, a tank of gas was, at most, about $20, if you were on empty when you got there. Most people don’t run their credit cards that close to the limit, and if they go over, there’s usually some sort of “over limit” fee that allows you to temporarily exceed your charging limit. So pre-authorizations were limited to typically a $1 “hold” to ensure that the card was valid.
Now, however, at $3/gallon and up, a tank of gas can easily cost $60 or more, particularly with trucks and SUVs. At the same time, more and more people are using debit cards that are accepted as if they were credit cards, but which do not allow the user to exceed his checking balance at all. So a station could easily find itself authorizing a card for $1, dispensing $60 of fuel, and then being unable to process the charge. Meanwhile, the car drives off from the pump and the station’s out the gas.
The solution the stations have come up with is this: a card presented as a credit card automatically faces a hold of some amount ($50 is common). Then the charge is processed, and typically, the credit card company can match the authorization transaction with the actual charge transaction once it’s submitted, and within a day or so, the original authorization vanishes. It’s akin to a restaurant authorizing your card for the pre-tip portion of your bill; when it submits the charge later that night or the next day, the actual charge supplants the authorized portion.
But with a debit card, authorization money comes out immediately from your account, even if you present the card as a credit card. It’s a single transaction. The station’s computers, in turn, match up your actual charge with the authorization, and if the charge goes through, they submit a credit automatically for the authorization. But we all know it takes longer for a credit to post to a card than a charge, even though there’s no reason it should.
(The official reason is fraud prevention; thieves are known to steal an expensive item from a store, forge a receipt showing it was charged to a credit card, and return it asking for the card to be credited. The delay in posting credits allows in theory for the store to ensure there was no fraud.)
Debit cards take money right out of your bank account. You do NOT have the same rights for debit card charges as you have for credit card charges.
With a credit card it is not YOUR money being stolen, it is the credit card company’s money. You get at least 20-25 days float on your purchases. You get miles, or gift, or cashback or whatever. There are holds on all sorts of purchases - again - your own money is not available to you because of a ’standard policy.’ Many merchants [Walmart/Target/Gas stations, etc] use unsecured wireless networks to process payment. I saw a TV news report where a guy sitting in the parking lot scammed credit card #’s and other info by tapping into the wireless network.
I use my debit card for one thing - and one thing only - as an ATM card. . . .
@ Kevin M: You are giving the motivation for the ‘hold’. There is nothing against a ‘hold’.
There is something against keeping the excess ‘hold’ for a full week. There is no technological reason to do so. The moment you drive away, the final amount is known. They can then return your money.
They don’t do that. They have silently decided to be lazy and keep your money for a week. That’s theft. Not fraud protection.
Each bank does it differently, but for my bank (US Bank), I only get charged as overdrafting, not having money avialable, etc, based on my Actual Balance, not my Available Balance (which includes pending transactions, including Holds).
Example:
I have $45 in my checking account (hey, I’m a college student, I’m poor)
I do pay at the pump, and get $30 in gas, and the Gas Station does a $50 hold.
My account website looks like this
Account Balance-$50
Available Balance$-5
a couple days later, the hold is replaced by the charge, and it would say
Account/Available Balance $20.
So even though my available balance is in the red, I haven’t overdrafted yet.
Hope this helps
The prepaid debit cards are a royal pain in the butt to use.
My wife got one as a rebate on her phone and after a screw up in the way it was charged at one restaurant, it took weeks of calling to get the charge reversed. Another restaurant charged it for the amount on the card and it was rejected because we found out that when cards are used at restaurants, they are automatically authorized for a higher amount to account for the tip which will be put on later.
The prepaid debit cards are often rejected by regular merchants processing terminals if you aren’t spending the exact amount on the card.
We were finally able to use the card when I called Cingular to complain and they said I could put the value toward her monthly bill.
And the final “gotcha” in the fine print is that most of the cards expire and if you haven’t used all the value, you lose it. I couldn’t get an answer whether the money would go back to Cingular or the issuing bank if we hadn’t been able to use her card.
@ Kevin - I understand - but how can you “return” gas. Couldn’t they make an exception?
Even if you have a credit card it messes up your book keeping. And if you have a debt-card that money is frozen.
They should be a lot faster to release the charges. (There was a hearing in Congress yesterday - but it was about finance charges for “sub-prime” borrowers. This should have been brought up).
-Michael
http://theplaz.com
Don’t you also get charged a fee when using a debit card? About 20-50 cents? I can’t understand why people use debit cards and give a cut to their bank at every purchase. Use a credit card and of course pay the full balance every month. Discover gives you 1% cash back on every purchase. Many cards have promotion periods where they give you 5% cash back on gasoline purchases. Discover currently has 5% cash back on groceries through December. Why give money away when you can get a discount.
Having had the same problems with using credit cards at gas stations here in Canada, I’ve found the simplest solution is to pull up at the pump, go inside and get the cashier to pre-authorise the pump with however much gas I want (paying inside by credit card) then going back out and putting in the car the same amount of gas I’ve already paid for. The pump won’t let you pump any more than this.
http://redtape.msnbc.com/2007/11/debit-card-purc.html#posts
This is an overview of how your debit card differs from your cc. Very useful.
Restaurants do the same thing to account for a customer’s presumed tip. We ate at an establishment and used the debit card for the bill and left the tip in cash, but the credit card company automatically tacked on an additional 20% to our actual bill. It disappeared in a week or so, but be warned.
Anybody who uses a debit card should try to get and use a credit card instead. It just takes discipline to pay the bill in full and on time.
Most debit cards work as credit cards too, and that’s the best of both worlds. Run the transaction as credit instead of debit and you don’t have to deal with actual funds being held like you do with a debit card.
@Jasper: The problem with debit cards and “holds” is that for a checking account (as opposed to a credit line), there’s no such thing as a hold, at least not at many banks. When an item is presented for payment against a checking account, it’s either paid or not. So what would be a “hold” on a credit line becomes a charge against a checking account.
In theory, yes, reversing a charge should be immediate, just like a purchase. But it’s not (for the return & fraud reasons I noted) and unless/until the banks are forced to change those rules, a return’s going to take longer to process than releasing a hold.
In other words, I’m not defending the process, just explaining why a debit card gets treated differently in these situations.
@ThePlaz: It’s true that gas can’t be returned, but lots of things sold at a gas station can be. My guess is that some of their processing rules cover all purchases made at the site.
@J Bloe: No, many banks (at least here) offer free debit cards to their checking account customers. I pay no fee for mine, so it costs no more to use than a credit card. That many not be the case everywhere.
I ended up paying 5000+ $$ amount for 3200$$ air ticket from expedia website through my debit card as my credit card does not have this limit. which overshot my checking account and had to pay 160$$ as penalty for overdrawn and insufficient funds.
Hopefully the “extra” amount gets credited back to my account in next couple of days, exact timeframe is unknown.
This is atrocious and unrequired headache.
safeway does it too! only its $75 dollars, because of them i got $45 in overdraft charges because they witheld 150 dollars from my account for more than 2 weeks.
HOW IS IT THAT IF I HAVE, SAY, 20 bucks on my card, the gas pump will shut off automatically at $20! This would indicate that the debit card company AND/OR the station was fully aware of how much I had on my card! The idea that the cc company has to hold a certain amount for several days just doesn’t add up. It actually makes more sense to me that they would use that missing money’s “interest-earning potential” for as long as they can. After all, how do you think a bank makes money off a SAVINGS account? To think they don’t have the “technology” to determine how much gas I actually pumped immediately is just too much of a stretch. we’re sending folks to the moon for heavensakes